What is the value of where you live?

land-to-be-usedWhen we talk about where you live, let’s keep it within walking distance from where you keep your stuff, as we focused on in an earlier post. Presumably, you’re also paying rent on the place, or paying rent on the money that you used to obtain the right to put your name on the deed. Notice here the absence of the term “buy.”

People have bought things for millennia. It’s an old and widespread custom. You go to the market stall or its equivalent, pick out something you like; the vendor hands it to you, you put it in your basket, and if you simultaneously hand her the agreed-upon number of metal tokens or chickens or cocoa beans, you may then walk away with the goods and not have some muscular fellow chase after you.

Safe to say that most of the stuff in the place you live has accumulated there as a result of this very process.  It’s the primary way you gain possession of artifacts of every sort. These are things that you own. Even the artifact enclosing all the stuff got there the same way — somebody went to the builders’ supply, handed over some tokens, carted the materials to your particular “where,” and put it together into a nice, cozy shelter.

The unique and somewhat peculiar element in what eventually becomes “home” is the fact that there exists a place to stack the lumber and materials; a place to stand while nailing it all together; a place to put the resulting big box in which to stash your stuff and your self. This element did not come from any store. Rather, it’s a rectangular piece of this ancient and living planet that some original someone first marked off and then, for reasons difficult to justify, declared to one and all: “I OWN this land.”

Note that he did not have to exchange any tokens for it. Even so, we just know that the next guy to take his place gave plenty of tokens to the first guy, who was only too happy to receive them in exchange for “his” land, along with, no doubt, a keen sensation of having gotten away with something big. Note also that the subject of the transaction never went into a basket or a wagon, or got transported to any other place. Obviously not — it is a place.

For new householders who may have wondered about the ownership ancestry of their multi-hundred-kilobuck purchase, there’s a fable told in legal circles about tracing title to land — apocryphal, no doubt, but it does shed some light on how the first guy in the chain might have justified having his name on the deed. It seems that a New Orleans lawyer, going through a routine verification of title for a real estate deal, traced it as far back as 1803, but the lenders insisted that it be cleared “back to its origin.” Exasperated, he obliged them with a history lesson:

“Louisiana was purchased by the U.S. from France in 1803, the year of origin identified in our application. The title to the land prior to U.S. ownership was obtained from France, which had acquired it by Right of Conquest from Spain.”

For good measure, he went on to cite Spain’s acquisition of the territory by “Right of Discovery,” wherein Columbus had acted on the authority of Queen Isabella of Spain, whose title to the New World was confirmed by Pope Alexander, who in turn was serving as Earthly agent for God Almighty, the very creator of the all the real estate on the planet. So much for origins; his clients got the loan.

It’s striking how the credibility of each earlier claim gets increasingly iffy prior to 1803: if we are to swallow the premise behind “Right of Conquest,” it’s another way of saying that might makes right. By the same token, “Right of Discovery” essentially means “finders keepers,” regardless of the circumstances surrounding the “find” and its earlier habitation; finally, the divine agency attributed to Rodrigo Borgia, a.k.a. Alexander VI, revisits an open question that has been the cause of considerable dispute and bloodshed down through the ages.

Only at the point of origin does the claim become more substantial, particularly if we recast “creation of God Almighty” as a more empirical “gift of Nature.” That’s what land is, and arguably, its proper recipient should be all humankind, or at least the portion of it currently inhabiting the land in question. That’s the idea behind the concept of the commons — it’s what belongs to us all, because it was here when we found it, and none among us can take credit for making it.

The commons includes a wide range of resources like air, water, the radio frequency spectrum, fish and wildlife, genes, and land explicitly set aside for public use. There are also artificial commons, like a national currency or public rights-of-way.

Ever since the 18th-century Enclosure movement of aristocratic landowners who appropriated public grazing land for the exclusive pasturing of their own flocks, those in a position to do so have systematically appropriated all sorts of public commons for private gain. This includes externalizing costs wherever possible, often in the form of using air and water as sinks for industrial waste.

The patch of ground that is yours to use exclusively by virtue of the name on the deed has a monetary value, as you’re only too well aware when you sign the monthly payment to your partner in ownership, the mortgage banker. The ground itself has a value independent of whatever “improvements” may be located there — most counties assess and tax them separately, in fact.

The odd thing is, you probably paid more for that piece of ground than the previous owner did, even though it’s exactly the same ground as before. If we’re considering urban land whose value is limited to its use as a location, rather than for productive value like logging or mining, then where did that extra value come from? The easy answer “market supply and demand” might not be untrue, but it only puts a specific amount to the extra value — it doesn’t account for how any extra value should happen at all.

Real estate agents pursuing the plumpest commissions have a well-worn identifier for value: “Location, location, and location.” This is their complete list of the important criteria; notably absent from the list are any qualities of the product itself. This surely makes real estate unique among all products, where the nature and qualities of the product are the main thing. Curious as that might be, the saying does offer some deeper insight than the average agent might suspect.

A valuable location has desirable bits of civilization around it: good schools, a good selection of stores and restaurants; parks, libraries, entertainment venues, and of course, other properties on the block of comparable value or better. Put another way, then, the basis of value for a property is the value of everything NOT the property that happens to share the same vicinity — the same place. It’s the whole place that is made valuable by the community that inhabits it. It’s the “where” in where you live.

Odder still, with all of this value that the community gives an individual property, most of it is captured by the individual owners — you and the bank. Some of it goes to you when you sell, but most, of course, goes to the bank in the form of interest. Very little of the value created by the community remains for the benefit of the community — the little that does return to the community comes in the form of property taxes, a generally inadequate and misplaced means to that end.

This value due to place, the community, is arguably part of the commons, every bit as much as a public park, but the bank has managed to “enclose” most of it by this peculiar method of defining and financing “private” property.

These ideas were first identified and worked out in some detail by economist and social philosopher Henry George, whose 1879 work Progress and Poverty was a best-seller in its day, and won him a sizable following for decades to come. Its relevance is enduring, for we still use land the same way today.

George worked out how to quantify the “commons value” of a piece of land, terming it “economic rent” (not to be confused with the money a tenant gives the landlord every month). He put it in the context of tax policy, advocating the idea that you tax things that society wants less of, and don’t tax things that society could use more of.

Property taxes may capture the economic rent (the “commons value”) for the public, as is appropriate, but these taxes arguably put a misplaced burden on the wages of the homeowner, which in turn will not be spent elsewhere in the economy. Meanwhile, the bank is capturing most of it via interest on the mortgage. The idea behind the “Land Value Tax” that George proposed is to redirect that value from the bank’s income stream, back into the hands of the public.

This has the advantage of being the least burdensome for the economy, in that interest income is not derived from productive activity, like wages and profit are — in fact, it is often referred to as “unearned” income. Rather, the interest from a land deal is largely due to the monopolist’s advantage of controlling exclusive access to that particular piece of land — which is another way of describing land “ownership.”

The bank would still get enough of the action to have an incentive to lend, but no longer would it be in the business of enclosing the commons — nice work if you can get it, fellas, but sooner or later this racket has got to stop.

It’s a blunt message we can send them, with the help of Mr. George: this is where we live, its value is because we live here, and by rights the value stays here with us.

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